California eyes REO escrow selection
Bill would prohibit banks from mandating provider
By Inman News, Wednesday, September 9, 2009.A bill aimed at preventing banks from dictating the escrow service to be used in transactions involving real estate-owned (REO) properties is expected to reach California Gov. Arnold Schwarzenegger's desk following its approval by the state Senate.
Assembly Bill 957, which passed the Assembly in a unanimous 77-0 vote in May, was approved by the Senate on Sept. 1 in a 29-to-4 vote. Because the bill was amended, it must now go back to the Assembly for concurrence before going to the governor's desk. As an urgency measure, the bill can take effect immediately if the governor signs it into law.
The bill's author, Assemblywoman Cathleen Galgiani, D-Livingston, claims banks and the federal Department of Housing and Urban Development (HUD) increasingly require the use of specific settlement-service providers when they are the seller of residential property.
Local escrow companies "are being shut out of the (REO) housing market," Galgiani said in a press release. "Instead of local businesses assisting buyers and expediting the transfer of foreclosed properties to homeowners, they're literally locked out of the market."
The Escrow Institute of California, which endorses the bill, says banks are directing properties to preselected settlement-service providers "regardless of service or cost." If a potential buyer does not agree to use these services providers, "their purchase offer will not be submitted or, if reviewed by the lender, will be denied."
Although such conduct may already by prohibited under the federal Real Estate Settlement Procedures Act (RESPA), Galgiani and the Escrow Institute believe "California needs to further enforce that the action of banks predetermining title and escrow companies for buyers is prohibited especially with the sale of REO properties," according to an analysis of the bill by Assembly staff.
The bill's language bars sellers of one- to four-family homes from requiring that title insurance or escrow services provided in connection with the sale of the property be purchased by the buyer from a particular title insurer or escrow agent as a condition of selling the property.
As amended by the Senate, the bill does not prohibit a buyer from accepting the services of a title insurer or an escrow agent recommended by the seller if written notice of the right to make an independent selection of those services is first provided by the seller to the buyer.
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Submitted by Bruce Slaton on September 9, 2009 - 11:05am.
So basically the REO companies will most likely offer two scenarios (which most do already):
1. The seller chooses and pays customary closing costs.
2. The buyer chooses and pays all closing costs as the seller is not obligated to pay anything.
Cant wait to see the lawsuits against the agents who try to steer business to local escrow companies to find out they didnt represent their buyers best interests and end up paying parts of their commissions to offset the increased cost to the consumers.
Or the local escrow company that tried to charge junk fees to the seller only to have to pass them on to the buyer because the seller refuses to pay them. Not a good bill for consumers, was a great bill for escrow companies and the NHD companies that tried to jump on the band wagon as well.
Or how about the delays potentially charged to the buyer because they chose the escrow company and the closing isnt happening on time because they do not know how to do REO transactions.
This should be fun!
Submitted by john bahr on September 9, 2009 - 9:38pm.
Leave it to the bank. The banks are already losing enough the way it is. Why should the State government dictate what services the banks should have to use. Let everyone develop a relationship and earn a job.
I can be pretty sure these banks are finding the best services at the lowest price as not to lose any more money on these properties. It should be the sellers choice on what offers to except it has always has been that way. It will be a bad day when the government gets involved.
Submitted by Bruce Slaton on September 10, 2009 - 7:15am.
I went through all of my addendums last night and each and every one of them have an option for the buyer to choose their own title and escrow (with the buyer paying the entire cost).
Whats going to happen is agent A is going to tell the buyer to use local escrow company A and this will result in a higher cost to the buyer than if they would have just used the seller directed escrow. I firmly believe the buyer should have the option to choose, but I also believe if it costs less to the buyer in the long term, the consumer is better.
One of the primary reasons REO sellers choose title is they have already done the complicated research that happens during a Trustees Sale, they basically have a binder through the process, also if there are issues with title, the parties are the same until to end. Now take a title policy ordered through buyers choice A, they may have to recreate a long process therefore extending the closing process, opening the buyers lender to delays etc.
You cant force business into good practices. Most of the escrow companies would already be doing REO if they had adapted their business to handle it. Seller A who has a title policy through Fidelity isnt going to pay for a whole new title policy through First American, the buyer will shoulder the cost.
Also the fees charged to sellers that are negotiated are much less than standard escrow charges. What do you think will happen when seller says they only pay $375 for escrow charges and buyers choice charges $650, the buyer will shoulder the difference if not the entire cost.